Life insurance is necessary for peace of mind. You need life insurance to make sure your family is cared for if you die. While there are different opinions on the matter, most experts agree that you need to have insurance to cover between three and eight times your annual salary. If you don’t have that much coverage, you might have a life insurance gap.

Letterman’s Teeth or the Grand Canyon?

Most people have a life insurance gap. What exactly is a life insurance gap? It’s the difference between the amount of life insurance you need and the amount of life insurance you have (or can afford). For some folks, the gap is relatively small. It’s the distance between David Letterman’s two front teeth, and can be fixed relatively simply. (And it should be – also much like Letterman’s teeth.)

For other folks, though, the gap is significant. You need several hundred thousand dollars of coverage, but you can only afford a couple thousand. Your gap is harder to cross – more like the Grand Canyon.

To be sure, most people fall somewhere in between. The important thing is knowing how to close the gap and make it more managable.

Are You a Whole Life Moron?

If you’ve got whole life insurance, you’re paying high premiums for low coverage. From the outset, that makes you sound like a moron. Now, there are some mitigating factors, of course. Whole life insurance builds a cash value and becomes not only insurance, but an investment. That makes you sound less like a moron.

But, hey. There are better investments. The fees involved in whole life insurance, along with the relatively low return on investment makes whole life insurance kind of a dumb thing to get – at least for investment purposes.

The one reason you might want whole life is to make sure your spouse is cared for after you pass. Whole life lasts your whole life, and therefore makes sure your final expenses are covered.

Of course, a good 401(k) can do the same thing.

Term Bridges the Gap

Term life insurance is cheap. It’s damn cheap. Unless you’ve got serious health risks (smokers, you’re out of luck here) you’re going to pay a fraction for term life insurance when compared to whole life.

Term life insurance lets you get more coverage, when you need it, for less money. It lets you bridge the life insurance gap.

Photo via kevindooley